Global pressures will hit prices in 2017

AS WE all know growing crops in Ireland is a risky business with weather, input costs, variations in yields, access to markets and price volatility all contributing to the profit or loss generated each year.

While most of the variables are beyond the control of the farmer there are a couple of tools that the farmer can use to reduce the risk. Forward planning is now more commonly used by farmers when making critical decisions on what crops to grow and where. However grain price volatility is something that growers find more difficult to plan for.

A second world record harvest in a row has resulted in depressed prices for cereals as the buyers in the market are under no pressure to buy up stocks. This is likely to continue into the 2017 harvest. While there are some growers forward selling, most wait until harvest before selling and are therefore price takers. There is little negotiation available on price at this stage.

Many growers did forward sell grain in 2012, but a difficult harvest reduced yield and quality and resulted in many contracts not being filled and endless arguments. As a result many have not returned to forward selling since.

However when we analyse barley prices at harvest versus those that were available in the eight months before harvest a common theme emerged that, prices were generally lower at harvest than at any time during the spring.

Teagasc have estimated that if a grower sold 50 tonnes each month for eight consecutive months leading up to harvest versus selling the entire 400 tonnes at harvest, over the five most recent harvests there was a potential benefit from forward selling of €37,000, an average of almost €18 per tonne.

While grain prices have declined generally since 2012 there have been times where prices have actually increased however prices still tend to dip at harvest time. In a rising market however, sellers must be aware that the benefits could be greatly reduced.

The key driver of the idea of forward selling is to reduce the exposure to volatile prices.

Many farmers do not have the skills or the time to be second guessing the market.

If you sell a small proportion of your grain every month, you will lose in a rising market and gain in a declining market, but the overall situation will be that your income will gradually follow the market trend.